Comprehensive Report on the DAO Grant Landscape
Introduction
The blockchain industry has experienced substantial growth and diversification thanks in part to funding mechanisms, often in the form of grant allocations. Various entities offer financial support to drive innovation, development, and adoption of these blockchain ecosystems and technologies.
In this report we aim to highlight key grant programs across the industry, to better understand their structures, benefits, and challenges.
Notable Grant Programs
- COW Grants DAO
- Overview: COW Grants DAO has allocated approximately $233,000 in xDAI and 370,000 COW tokens (worth about $120,000) across 13 projects between Q4 2022 and Q1 2023.
- Funding Structure: Grants are typically divided into two payments: one upfront and one upon achieving specific milestones. This structure ensures accountability and progress in project development.
Example of Milestone-based gradual rewards
- Grant rounds:
- Wave 1 (Q4 2022):
- Milkman Smart Routing for CowSwap: $45,000.
- Trader Anon Leaderboard: $2,500.
- New Web Design: ~$41,200 (42,500 €).
- Wave 2 (Q1 2023):
- CFMM Research Piece: $21,000 upfront, 210,000 COW upon completion.
- GoLang Client SDK: $5,000 upfront, $5,000 upon completion.
- Wave 1 (Q4 2022):
- Strengths: Ensures project delivery through milestone-based payments.
- Weaknesses: Potential delays in project completion affecting subsequent funding rounds.
- WEB3 Grants (Polkadot)
- Overview: Polkadot’s grant program focuses on achieving specific targets set by the protocol, funding various projects each quarter.
- Funding Structure: Similar to COW Grants, divided into two milestone payments.
- Grants rounds:
- Q4 2023 Funding: ~$550,000 committed across 23 projects, with 11 fully delivered and 6 yet to reach any milestone.
- Q1 2024 Funding: ~$215,000 committed across 12 projects, with 7 fully delivered and 5 yet to reach any milestone.
- Strengths: Encourages a wide range of projects aligned with protocol goals.
- Weaknesses: Some projects face challenges in reaching milestones, leading to partial funding.
- Gitcoin
- Overview: In total, Gitcoin has distributed over $60 million in 3715 projects, involving 4.2 million unique donations. These rounds are very popular among the community and one of its primary goals is to serve as funding for public goods, which empower the whole community without specifically focusing on profit generation.
- Funding structure: Gitcoin uses quadratic funding to match community crowdfunding with a pool of bounties, enhancing the distribution of funds across numerous projects.
- Strengths: Distributed funding ensures a broad impact across many projects.
- Weaknesses: Dilution of funds can result in minimal impact for some projects; lack of tracking achievements post-funding.
Example of a Gitcoin grant round information.
- Arbitrum
- Overview: Arbitrum Ecosystem Incentives originate from the Arbitrum DAO treasury, aimed at boosting DeFi user activity, successfully increasing Total Value Locked (TVL) and revenue for participating protocols.
- Funding Structure: Currently, three funding rounds have been distributed or announced: Short Term Incentive Program (STIP), STIP back fund and Long Term Incentive Pilot Program (LTIPP). Projects can apply for a fraction of the distributed funds. In case of misconduct or misuse of funds, projects can be disqualified for subsequent rounds through a challenge mechanism.
- Strengths: Direct correlation between incentives and ecosystem growth.
- Weaknesses: Unsustainability of incentives over the long term.
Arbitrum 2023-2024 spending breakdown excluding Arbitrum foundation and including STIP, STIP back fund and LTIPP ecosystem incentives.
- Optimism
- Overview: Offers two grant types—retro funding for past contributions and goal-oriented grants, distributing over 120 million OP tokens to more than 950 projects.
- Funding structure: Grant cycles allocate funds to applying projects based on premade objectives, Retroactive Funding Program (RFP) retroactively reward popular projects that contributed to the Optimism ecosystem after the contributions were made.
- Strengths: Retroactive funding ensures support for proven contributions; goal-oriented grants drive new developments.
- Weaknesses: Retroactive funding may not always align with current needs and priorities.
Overview of granted projects in Optimism RFP Round 3
Conclusion
- Layer 2s are undergoing aggressive grant funding to outcompete their neighbors, grants are focused on rewarding protocols that deploy on their blockchain and incentivising users to drive up volume and TVL. Grants are applied for before the granted activity (Arbitrum STIP / LTIPP) or after (Optimism RFP). These grants have been deemed effective in enhancing user activity in the short term, however, it is still to be studied what effects they have in the long term to make these users stay in the chain and not to migrate to other chains when the incentives run out.
- Individual protocols building DeFi infrastructure are also performing extensive grant programs, mainly aimed at finding use cases for their products and expanding functionalities. These grants are usually stricter and structured in multiple milestones that applying projects commit to. Granted funds are then unlocked upon completion of said milestones. This method is more effective, as no funds are wasted until the goals of the grant are achieved, but, being the milestones too specific, it can reduce creativity and miss potential improvements that were not considered within the scope of the grant.
- Public grants (Gitcoin) are an innovative way to distribute funds in a collaborative way. It has a broad spectrum of action, aiming to fund as many valuable projects within a category as possible. This approach has the advantage of distributing funds more equitably, fostering creativity as projects that are less popular will also get funded, but less effective as the total pool of funds is diluted among numerous projects, which reduces the chances to help develop impactful progress.
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